Former finance minister P Chidambaram on Tuesday said the Centre's decision to demonetise Rs 500 and Rs 1,000 currency notes deserved support because it was aimed at tackling black money hoarding. "We agree that the objectives are sound, but we will have to wait and see whether they are achieved," he said.
The Congress leader also called for quick replacement of the old notes with the new to cause "minimum problems for the poor and middle-class". "It will be counterproductive if people with legitimate money are put through inconvenience and harassment," he explained. "The test will be how quickly the old notes will be replaced by the new when they are legally tendered in banks."
On Tuesday, Prime Minister Narendra Modi announced that Rs 500 and Rs 1,000 notes will no longer be legal tender. The move to demonetise the high denomination currency notes was aimed at curbing corruption and hoarding of black money, as well as to stem terrorism from being funded through counterfeit notes, he said in a surprise address to the nation. The government will also introduce new Rs 500 and Rs 2,000 notes from November 10.
Chidambaram also noted that various governments had considered the idea of demonetising such currency, but dropped it after taking into account the minimal economic gains and the inconvenience it would cause the public. "The government had demonetised high-value currency in 1978, but it had failed," he said. He adding that the economic gains of demonetisation should at least equal the Rs 15,000 crore to Rs 20,000 crore it is estimated to cost to introduce the new notes in the market.
Finance Minister Arun Jaitley, however, emphasised that the failed demonetisation attempt in 1978 could not be compared to the current initiative because the economy then was not as thriving. "This move will take India towards a cashless economy...It will serve as a setback to the parallel black money economy because a lot of currency that is operating outside the system will now have to get into the banking system," he said.
Jaitley also highlighted the "significant" long-term benefits the economy will enjoy from this decision. "We appeal to people to bear the relatively minor inconveniences for a short period of time," he said, adding that the government had provided a 72-hour window for a number of services to minimise these difficulties.
Union minister Venkaiah Naidu supported Jaitley's statement, saying the move will help check corruption, inflation and black money and also deal a huge blow to arms dealers.